FAQS

In the process of buying or selling a dental practice, it’s natural for questions to arise. Here are some of the top questions the industry is asking today:

For sellers:

“Can I be involved in clinical dentistry after I sell my practice?”

Yes.  Today, many Buyers own several locations and therefore need the doctor who is selling to continue to treat patients.  This can be a great way to ease in to retirement—a gradual scale down over time versus having to walk away the day of the closing.

“How do I determine what my practice is worth?”

There is no simple answer to this question.  Many in the industry like to cite the fact that dental practices sell for between 60 and 75% of collections.  This is a broad range and also doesn’t account for the unique valuation attributes of a specialty practice.  There are many aspects of a particular practice that factor into its value. That’s why it pays to to engage the services of a valuation expert. They can help you understand the true market value of your particular practice.

“If I decide to sell what are my next steps?”

Be sure to have your practice analyzed and valued—well in advance of a potential sale.  By performing an analysis 5 to 10 years in advance of your retirement, you’ll have the opportunity to make changes, which will help maximize your value.  Too often, I am contacted by a seller who wants to sell immediately, but has let their practice deteriorate or hasn’t kept up with capital investment. When this is the case, it makes it a lot tougher for the seller to get the maximum value for their sale.

“When do I tell my staff when I’m planning to sell?”

I’ve worked with sellers for over 10 years and there is no right or wrong answer here.  Many sellers don’t want to inform the staff until they have assurance that the transaction will close. In fact, they often wait until the funds have actually hit their bank account.  This strategy protects the seller from loss of patients and staff, but it also creates an uncomfortable work environment for staffers when they show up for work one day and find out they have a new boss.  If you have long tenured staff members, this can also cause them to feel left out—which can lead to resentment.  On the flip side, telling the staff well in advance of the closing can also create angst, especially if any issues arise during the closing process.  The dental community is small, and telling the staff early in the process can lead to staff attrition and loss of patients. Ultimately, this puts the closing of the transaction at risk. For these reasons, I advise my clients to:

  • Consider the type and longevity of relationships they have with their staff. Is it strictly professional or are their personal connections as well?
  • Bring them up to speed on what’s happening about a week before the closing
  • Have the buyer meet with the staff the day of (or after) the closing, to put a “name to the face” and ease the staff’s anxiety over losing their jobs and/or benefits.

“What if I want to continue practicing dentistry, but don't want to manage the practice any longer?”

There are many Buyers who will offer you this opportunity.  In fact, most multi-office owners want exactly that—to have you come in and continue to see patients.  They will have a management team in place to support your team members and ensure that the practice runs efficiently.  Most dentists whom I’ve partnered with find themselves working longer days than they want. That’s why they are pleasantly surprised when, after the sale of their practice, they can focus purely on providing care to patients, which is what they went to school for in the first place and what gives them the most fulfillment.

How long will it take to sell my practice?

There are many factors that impact the length of time to sell a practice.  Geography generally has the biggest impact.  Across the country, we’ve seen younger doctors who have a preference for living and working in major metropolitan areas.  Practices in major metropolitan areas will sell much more quickly than those in rural areas.  Another factor that plays into speed of sale is the size of the practice.  Many first time owners need a practice of a certain size; one with an income stream that will cover living expenses, as well as educational debt and the new practice debt.  In general, practices with less than $500K in collections take longer to find the right buyer.  Lastly, the type of buyer you are looking for comes into play.  If you are open to considering a variety of buyers in the marketplace today, you’ll have a better chance of a quick process. However, if you have very specific criteria, it will likely take longer to find the right buyer.

When should I start thinking about selling my practice?

It’s best to make your move before your practice starts to deteriorate.  If you start to take more time off from the practice and/or reduce or limit advertising activities, you will lose value.  When you consider today’s seller’s market—and the potential to keep working if you wish—it’s best to consider setting up your transition plan 5 to 10 years from your projected retirement.

What is involved in negotiating the sale and structuring the agreements?

Negotiating the sale of your practice can be a very emotional journey, so it’s smart to engage professional sale-side representation to keep a level head. The right advisor will walk you through the process and ensure that your value is maximized and that the closing goes smoothly.  Most transactions are not complex, have standard legal terms and provisions, and can be documented and consummated fairly easily with the assistance of legal counsel. However, there are times when deals have to be structured creatively. In either case, our team has the experience our clients need to consummate transactions under most any circumstance.

Are there tax consequences I need to consider?

Yes.  Each individual’s tax situation will differ.  The common characteristic of every transaction is the allocation of the purchase price between tangible assets (taxed at ordinary income rates) and intangible assets (taxed at capital gains rates).  The challenge is that Seller and Buyer are on opposite sides of this allocation in regards to what is in their best interests from a tax perspective.  That being said, in most transactions, 80-85% of the purchase price is allocated to goodwill.

For Buyers:

How do I know what the value of a practice is?

There’s no simple answer to this question.  Many in the industry like to cite the fact that dental practices sell for between 60 to 75% of collections.  This is a broad range and also doesn’t account for the unique valuation attributes of a specialty practice.  Each practice is unique and there are many factors that play into its value. That’s why it makes sense to engage the services of a valuation expert. They can help you better understand the true market value of your particular practice, as well as assist with the review of financial information presented. A valuation expert also has the insight needed to understand the relationship between the person who issued the opinion on value and how they will be paid for those services.

What is due diligence?

Due diligence is the process by which a Buyer confirms that the information that was presented to them (leading up to the presentation of their offer) is true and accurate.  At a minimum, a Buyer should perform financial, legal and clinical due diligence.  This step is critical to protecting the significant investment you are about to make.

What factors should I consider when looking for a practice?

When I talk to first time owners about a potential acquisition, typically I ask two questions: 1.) Is this the practice they always envisioned themselves in, and 2.) Is it in a community that they want to be part of for the next 25 to 30 years?  Beyond that, it’s important to understand that you and the selling doctor have a similar clinical philosophy.  In addition, your ability to perform the same type of procedures as the Seller is critical to maintaining the revenue stream.

What is a good active patient count figure?

When I was on the buy side of dental practice transactions, I never considered the active patient count.  There is no industry standard for what is considered an active patient and most software systems have various methods of reporting this figure, making available data unreliable.  I prefer to look at the new patient count per month to ensure that the practice is consistently attracting new patients. After that, I focus on the stability of the historical revenue stream.  In addition, I typically look at the adult prophy code to gauge the size of the patient base.

How can I be assured that patients will stay with the practice?

The reality is there are no guarantees, and you should expect some attrition. But relax—it’s entirely natural.  There are many reasons why a patient might leave a practice, including:

  • They have been coming to the practice for years and used to live/work closer but now have to commute.  They may see the transition of their doctor as an opportunity to find someone else closer to home/office.
  • They don’t want to have to switch from male to female, or vice versa.  Some patients have different comfort levels around gender.
  • Other innocuous reasons, including trivial things such as not liking the color of your shirt the first day you met them.

With all that said, if you treat the staff and patients with respect and kindness and instill confidence through your clinical skills, it’s very likely that you’ll retain most of the patients.

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MORR Dental Solutions, LLC
1800 West Park Drive, Suite 300
Westborough, MA 01581
Phone: 508-926-2400 • Fax: 508-616-2914
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